Law and Finance: Why Does Legal Origin Matter? / Thorsten Beck, Asli Demirguc-Kunt, Ross Levine.

Format:

Book

Author/Creator:

Beck, Thorsten.

Contributor:

National Bureau of Economic Research.

Demirguc-Kunt, Asli.

Levine, Ross.

Series:

Working Paper Series (National Bureau of Economic Research) no. w9379.

NBER working paper series no. w9379

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2002.

Summary:

New research suggests that cross-country differences in legal origin help explain differences in financial development. This paper empirically assesses two theories of why legal origin influences financial development. First, the political' channel stresses that (i) legal traditions differ in the priority they give to the rights of individual investors vis-...-vis the state and (ii) this has repercussions for the development of property rights and financial markets. Second, the adaptability' channel holds that (i) legal traditions differ in their ability to adjust to changing commercial circumstances and (ii) legal systems that adapt quickly to minimize the gap between the contracting needs of the economy and the legal system's capabilities will foster financial development more effectively than would more rigid legal traditions. We use historical comparisons and cross-country regressions to assess the validity of these two channels. We find that legal origin matters for financial development because legal traditions differ in their ability to adapt efficiently to evolving economic conditions.

Notes:

Print version record

December 2002.